Sunday, February 27, 2011

I have been talking with lots of new traders and when I ask them to tell me their trading strategy
I get different answers.

For example:

1. My trading strategy is a secret!
2. I use stochastic and moving averages!
3. My trading strategy for tomorow is: if 1.3000 would be broken then price will go up.
4. What is trading strategy, etc.

So I will answer what trading strategy is and what it isn't. Trading strategy is not a secret! Trading strategy is
just a tool for trading. There are lots of trading strategies and you need to find one that suits you.

Trading strategy will tell you 3 things: 1. Where to enter the market, 2. Where to put your Stop loss,
3.Where to take profit!

For example: you will risk 25 pips (1%), and your target would be 25 pips (1%).

If you make a gain it will be 1% of profit or if you make a loss then your equity would be -1% !

Trading plan is something else!

You need trading plan to tell you what currency pair to trade, exact time for trading and to setup your goals.
What is your daily goal and max daily risk!
What is your weekly trading goal and what is your weekly trading risk.

For example:

Monthly risk: -5% Monthly goal: 14%

Weekly risk: -3% Weekly goal: 3,5%

Daily risk: -2% Daily goal: 1%

You need to create your trading plan and to have it on your desk.
First thing that you need to do when you are sitting in front of your computer is to check your trading plan
to see what is your goal for today. When you are finished with your trading day, also check your trading
plan to compare your trading results with your goals. It is very important to follow your trading plan!